Intel confirms $2.5 billion fab in China

BEIJING  Intel Corp. confirmed Monday that it will build a $2.5 billion, 300mm wafer fab in the northern Chinese city of Dalian. Fab 68 will begin construction later this year and is expected to go online in 2010, using 90-nanometer technology to "initially" make chipsets, the company said.

Fab 68 will be Intel's first wafer plant in Asia, and is its first in 15 years at a new site. The project is a major coup for China, which is campaigning to move up the technology food chain and clean up its poor track record on intellectual property protection.

"It is no secret that China is at the forefront of a remarkable surge in both market growth and innovation," said Intel chief executive Paul Otellini during a press gathering at the historic Great Hall of the People, China's seat of power. "Today's announcement sends a message that the Chinese market is very important to Intel."

Otellini had some other messages, too. For the U.S.: get more competitive or else. It costs Intel $1 billion more to build a factory in the U.S., he said, naturally encouraging the chip giant to scour the globe for options. Of it's last three advanced factories, two have in the U.S., and one in Israel. "The fourth one is (in China) today. So we are taking a fairly global view on these investments, and weighing the all core expertise we have at existing sites against the cost savings and incentives that governments can give us," he said.

Intel expects the fab to be its lowest cost site by the time it comes on line. For the first time, the company won't use its "copy exact" mode of ramping a facility " basically using existing protocol to speedily get a facility up and running. That's a bedrock principle of Intel manufacturing.

Instead, Otellini said Intel will experiment with "new technology" to try to get the China fab to be its lowest cost advanced facility in the world. Some US engineers will come in to oversee the facility, but it won't be on the scale seen at Hynix-ST Semiconductor in Wuxi, China. That facility is one of the fastest ST has ever brought on line, but it happened largely because Hynix shipped in about 500 engineers from South Korea.

Otellini hinted that Intel would like to eventually make CPUs at the plant, and introduce some of the company's most advanced technology. But for now, that's not in the cards because of U.S. technology export restrictions.

Until China more comprehensively proves its commitment to IP protection, the chipmaker will likely remain cautious about how much advanced technology it brings here. "Intel is still not ready to release any of its most leading edge 'tricks' to China. And Intel's ex-pat employees do not have access to Intel's most advanced developments from the U.S.," said Joanne Itow, an analyst at Semico Research.